Greece will default, maybe not today, but it is only days or weeks away. Odious Debt, a concept suggested in a 1927 treatise by Alexander Nahum Sack dwells on the principle that debt accumulated by a Sovereign Country doesn’t have to be repaid if it was borrowed for use that did not benefit the State and its citizens. With that in mind, all banks need to think twice about whom they loan to.
Right now Greece has problem borrowing money, the rates are outrageously high, and they are a bad credit risk. But what happens if they default? The bonds at that point probably go to about being worth 10% of face value. The Greek government could redeem those bonds at 10 cents on the dollar. Not a bad deal. Of course, the question comes up; do they really need to redeem the bonds at 10 cents on the dollar? Probably not.
Then after the default, their credit rating might surpass that of Iceland.
The world banks want their loans to be repaid. Better terms and more years to pay doesn’t make the debts any more manageable. The debts will not be paid. But that concept eludes our international bankers. This is just hanging paper, over a bad financial transaction. There comes a point when kicking the can down the road no longer has any appeal, it ceases to ameliorate the problem.
Greece has arrived at its final destination. Repudiation is the next step and from there, better times for the country. The repudiation pretty much ruins anyone with retirement savings, they are gone. Everyone gets to start over again. If you are 75, the idea might not be greeted with much enthusiasm.
After Greece defaults, the game is pretty much over. Do we cover their debts to keep the financial ball rolling? If so, what stops the rest of the PIIGS from queuing up?
Of course, could it be, that maybe the bail out money being used to finance Greece’s bailout, is from the funds deposited by the USA in the IMF? Why do I get the feeling that the answer is yes? Maybe, because the Germans have no desire to finance the spendthrift Greeks?
The headline could read “Bernanke Finances Greek Bailout.” Of course I could be wrong. It is all Greek to me.